The Purest form of Fundamentals

DIFFERENCES - Many times the fundamentals aren't clear, or at least which side of the fundamental argument is the one that will ultimately win out the battle for direction. And so, in these cases, the best way to get as accurate assessment as possible is through the charts. But looking at the charts right now, there are many different messages coming through. If for example you look at EURUSD or GBPUSD, they are suggesting the next big move will be to the upside. If on the other hand you look at the commodity currency charts, they are pointing to weakness and Dollar strength. I went into all of this yesterday, and discussed the why, but it is definitely interesting to see such a divergence where for example EURUSD and GBPUSD have just broken out to fresh 2017 highs through major range resistance, while USDCAD looks exactly the same, breaking out to a fresh 2017 high through major range resistance (meaning the Canadian Dollar is doing the exact opposite).

REFRESHING - With that said, the charts are telling us something interesting that's going on that hasn't happened in quite some time. We are seeing signs of currencies doing their own thing a bit and everything not breaking down to the US Dollar against all currencies. We are seeing a divergence from correlations that have dominated markets in recent years, where it may not be as simple as assuming if the Buck is up, then it's up across the board or vice versa. There have been things going on in the Eurozone and UK that are making it more attractive to be buying the Euro and Pound. But at the same time, there are things going on relating to the commodity currencies that have been making it less attractive to be buying currencies like Aussie, Cad and Kiwi. This makes for a more interesting market and while I don't think we've really arrived at this point just yet, the signs are encouraging as they show the market starting to decouple from the monetary policy trade.

PUREST FORM - But why the charts? Why look at a bunch of lines to make decisions like this? Isn't that crazy? One of the things I always tell people when they ask me about technical analysis is that technical analysis is the purest form of fundamentals. Of course when I say this, people look at me like I didn't understand the question. But let's think about it for a moment. When you look at a market, it is made up of many different types of traders, with many different types of strategies. Some traders use fundamentals, some are more quantitative, some are longer term, some are shorter term, some go with the trend and some go against it. Some are very larger, while others are smaller. Some are governments and central banks and some are banks and hedge funds. Of course it goes on. So what's my point? Well my point is that no matter who you are, if you're trading it, then it means it is getting discounted into the price. Therefore, if everything is discounted into the price, then doesn't it make sense to watch the way the prices move?

When you watch a chart, you are looking at the entire makeup of the market in one glance. Via @joelkruger

MORE THAN LINES - Watching a chart is watching the movement of prices. More importantly, watching the chart is watching the movement of everyone participating in whichever market that one is looking at. And so, when you watch a chart, you are looking at the entire makeup of the market in one glance. You are seeing all of the fundamentals right there in front of your eyes, not just the fundamentals that you think are the important fundamentals. There are also so many things going on in markets that are impossible to keep up with or that we don't even have access to. But again, when you look at the chart, it is reflecting that unknown view in the price action. So again, as much as I like the idea of the US Dollar recovering against the Euro (ie EURUSD lower), the chart is telling us that right now, the argument for the Euro is stronger. The charts are a blueprint for the entire makeup of the the market. And so, this is why I like to say technicals are the purest form of fundamentals. Watching charts isn't about watching lines, it's about watching the money.

I am a seasoned currency strategist and professional trader. I have worked for investment banks, fixed income research advisories and a leading foreign exchange brokerage. In 2012, I set up JKonFX.com to offer my daily insights and trading strategies.